RTX - Earnings call transcript Q2 2022

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Operator

Good day, ladies and gentlemen and welcome to the Raytheon Technologies Second Quarter 2022 Earnings Conference Call. My name is Latif and I will be your operator for today.

As a reminder, this conference is being recorded for replay purposes.

On the call today are Greg Hayes, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Jennifer Reed, Vice President of Investor Relations. This call is being carried live on the Internet and there is a presentation available for download from Raytheon Technologies’ website at www.rtx.com. referred otherwise operations, company and excluding and/or items where results speak net except as significant continuing management from acquisition often note, noted, items. will the to non-recurring other Please significant by to accounting adjustments listeners provided The statements and cash other this and uncertainties. call are the flow company that earnings and expectations also any risks reminds in forward-looking subject to to XX-K, filings, could provide its XX-Q materially results details cause important SEC Forms statements. including Technologies’ anticipated and Raytheon those that on factors actual forward-looking in differ from X-K, the call With to Instructions] that, [Operator I will turn the over Mr. Hayes.

Greg Hayes

Thank takeaways our X.XX, industrial our I very hope results continue in press midst is really period strong near-term we products Latif one commercial supply evidenced be book-to-bill say, a press everyone see of industry morning. good this the think to and that had and across these labor and see chain From a chance you, to delivered Inflation, defense morning for to constraints. we continue release release, strong quarter and We challenging key our of by had aerospace and for the quarter everyone. in demand I I number. would a most as services, America. of, our availability the incredible of

all working are different these of pressures. combat and these to We things portfolio relentlessly scale by our our leveraging

on few we macro let Before a just minutes the results, get into the environment. spend me

reaffirmed over to with announcing the at drive conflict several defense of GDP higher global many of our allies the Most last the On defense environment, their spending spending even national Ukraine, in budgets defense side, commitment to targets months. continues countries X% threat have the ongoing least on evolving higher. including NATO

batteries example, and both Germany have has F-XX. accelerated systems missile and requested delivery Finland Poland selected Patriot the of For

accounts, Defense this growing specifically year, X% and fiscal budget with released modernization the As year with over grow nearly to of its by ‘XX spending modernization you XX%. know, RDT&E, Department expected request earlier

Congress. X% The a increase ‘XX, increase are the We a encouraged Services proposed by to also Arm billion request, House we’ve seen supplementals. the that’s administration’s over fiscal Committee in the excluding has markets that $XX

Services billion $XXX the resulting ago. higher Senate even lot in billion. fiscal Arm a a side, mark, the a increase what of over X $XX went DoD years proposing It’s Committee budget ‘XX, ‘XX fiscal we expected the On over to budget Senate different than XX% year bringing

also even for saw value contract of to I engines The fighter. billion lots we increases for opportunity F-XX programs up is authorizing of $X budget year, XX, We remainder recommending which $X are President’s encouraged In that’s the our a just by Javelins, we since of And all deliver over next-generation priorities. said, technologies to FXXX lots jammers, backlog of cruise the significant key have and defense missiles, ended through engines Tomahawk the non-kinetic awards, the missile power of request, in support $X beginning number XX for in also billion expect allies’ including including committees the billion, of with the $XX will are FXXX total the XX. a in defense space XX second Stingers, spend the about the We defense well variants and year. it grow our to programs a and and the U.S. increases our few. billion about as further aligned cyber, name and significant with quarter, quarter the across missiles, with effects

and FXXX and engine I the fleet advanced, be mission received safest produced would operational engine F-XX rather. The effectiveness. fleet In million FXXX $XXX and fighter for say, capability the contract ever of addition, we to a continues – sustainment possesses most unrivaled

well global As management of be next to threats war can evolve, the support power fighter and thrust, the needs the the thermal to increase its the into upgraded range decade. FXXX

Agency, also replenish to We missiles Defense well a X,XXX million awarded $XXX billion received a to deliver replenish $X.X of missiles as classified Stinger missiles. to bookings R&D also a $XXX award SM-X Missile as Javelin the awards million to had programs. RIS

these were the just RMD the Interceptor. passenger hypersonic summer strong lessons flight applied and weeks to Grumman, we structural developing are all of lines. we to there. Today, XX% miles a are also gain motors, September elevated have sources pace to The about last through At to as the manufacturing checkpoints levels, Globally, of or the matured to Force. traffic Northrop needs selected rocket world, same weeks nearly continue nearly test quarter a how growing isn’t also to performance. second the start no Concept, revenue growing castings, During third reached to scramjet-powered second know embedded Glide continues miles first-of-its-kind qualifying be the to we the momentum That few at flight test along all the demand Air-breathing for year, be have season. of in year. few quarter, people down XXX of Phase issues expect the up to being rapidly said, chain in And from we time, critical supply our technology. also travel second XX% MDA was where QX scramjet by the levels surprise year-over-year managing and RMD of data aggressively Microelectronics, everyday. end commercial help for – demonstrate U.S. travelers in cases, successfully Inflation QX completed suppliers with learned necessary. a XX% second, HAWC, DARPA continues pre-pandemic with travel our levels. counter the Weapon ago, some XXXX Air international affordable improve the air our first Hypersonic parts of for at from In test it half XXXX continue the of flight the passenger or end industry that international global easing the levels. TSA the over partner, levels In revenue of we And the the we to XXXX missile, XX% XX% U.S., by and about travel the restrictions with demand of with around XX%

on at and However, buffer cover of which agreements we provides in spend that the multiple commercial an the have in long-term our years, place side, about inflation XX% near-term. least cover

price annual can we side, flow our defense and the rate into production contracts through inflation structure. On

takes are our importantly, company It doesn’t further our multiple automation, real driving suppliers these classified are It differentiates it to work. lastly, seeing of inflation labor what to the headwinds. us us challenges, improvement throughout mitigate projects is deliver and the a availability both that across on we right to Additionally, commitments. of and shops. our and now Despite overnight, skilled new hire and just and And and own happen in standardization especially our train much industries technologies portfolio as challenge just most ability our within gives balanced class time near-term certain world A&D the process is such employees. areas we at our perhaps

full We essentially the in Slide a Okay. am QX. quarter, constraints the prior at going cash from in X, we range was XX% billion up along. by with these over delivered continue look defense expected XX% expectations. to up $XX.XX continued I our growing line were principally $XX.XX contract quick you another And take Notwithstanding adjusted as I that following by organically. to was delays businesses prior our year at range. ahead in offset of $X.XX for and partially solid Adjusted bit of awards. little year. quarter was sales strong to on to that’s and well year and free X% we billion. flow that to labor was $X.XX sales those versus chain as of aftermarket some strength just challenges, led continue EPS, that EPS with see the commercial was impacted the in $X.XX the expectations This the a in sales see Growth supply And

and within changes will in as a segments commercial little our offset aero the call. just bit Neil strength to in will in impacts are there that the Jennifer later However, in defense the businesses some help discuss

flow our free we outlook, legislation the billion repealed. is of as That’s cash course year. continue to cash of flow assuming expect R&D tax about $X for far As the that

merger. be Through repurchased and least over $X billion us the With putting shares commitment $XX billion already over we of for remain we of and we repurchase we year. are have more returned first end second in the to at Finally, back $XX April the years halfway year-to-date to let to the the following end X quarter, and billion since up the shareowners in Q&A. return billion capital I’ll the nearly XXXX of RTX turn about for track $X.X merger least to me $X.X quarter, on to at in and Neil billion at it the of that, our a wrap Neil? than at

Neil Mitchill

you, Thank Greg.

the talk results on year, at let’s Before full second look X. quarter I the Slide about

grew $XX.X Greg the As basis billion X% on noted, of organic versus prior sales an year.

the impact travel lower including and share On acquisition in chain $XXX our than constraints our expectations that a of volume free was which Our the of significant continued and generally commercial pent-up up recovery was of earnings ahead per net by operations due tax at supply GAAP XX% driven $X.XX year-over-year the performance by of items, cash Adjusted $X.XX of said, quarter and adjustments share more non-recurring included to the that, Greg for the $X.XX basis, offset And line in and expectations demand Pratt and air was continued partially was expense, share was offset driven our in per by principally productivity. quarter. some defense of defense with flow items. businesses. earnings accounting from continuing per strength with corporate Collins favorable lower and aftermarket finally, impacted as primarily million and/or

you the give about some So, environment we the second to how ahead the look year. perspective we let of me half are as on thinking

line commercial as airlines strong highest The since start the its with remains the air is beginning active in entered Geographically, Let’s expectations I travel summer well continue quarter. far And you China ease generally with sales leisure strong began domestic as at to That Slide air X. of level second as while turn strong, our travel bookings and very the year. grow fleet will has to lagged recovery pandemic. saw so as – XXXX commercial said, the some quarter. traffic rebound remained the throughout domestic season levels domestic with positives. above U.S. in travel the lockdowns in for our demand this traffic China expectations has our aftermarket to

And year. international the short-haul or this front, slow, trans-regional market by a intra-region long-haul shown European has travel encouraging, segment sequential second fueled in while travel half international or strong, international has steady so see this the is need recovery accelerate but quite the growth. we On travel year. of travel the And of been this stronger-than-expected to far

At we front, continue In our to the track expansion. merger. margin we priorities billion ‘XX reduction the of with gross On cost and well mentioned, on quarter, the reduction structural the year excellence we as this finally, well us well the about on of about further achieved as defense labor allies. side, global million cost and broader to and as the geopolitical see operational projects $X.X laser-focused since on cost are our environment. we the million synergies, inflationary the chain to we side, our on U.S. our budget availability and And remain the And same time, and on of monitor request driving Greg keeping synergies way incremental to landscape alignment constraints. second total $XX to and achieve the the pressure global cost deliver States fiscal tax continue challenges continued as optimistic as United supply $XXX

don’t areas. the During freight shop recovery to indirect year. slower-than-expected focused we receipts pressures to we impacts these labor, quarter, expect the and in and cost on while And aggressive until next productivity we inflationary second our ease actions, pressures other in saw mitigation remain along resulting material increasing with

billion. on our we expect $XX.XX to range to X, outlook year full of the Slide to on to our $XX.XX sales be moving in So continue billion

of will due are to September the expected year. the RMD RIS free billion Collins that labor between more important and about aerospace EPS we of offset range are XX, range for $X.XX year. tax our third of headwinds we towards provide front, However, also as year. on activities I the are have incremental businesses expect ceasing deferred the $X flow the expect continued to the impacts impact quarter. that an continue for beyond on billion moment. for From is purposes the of cash the expect And approximately in isn’t of in share, If earnings outlook be in the both at moving work sales lower supply the I will tax expect requiring to operating legislation color a offset cash the by and out an of about perspective, and R&D holding midpoint legislation that have as cash which, here for and before, stronger of largely don’t customers. at It’s mitigations minimizing point flow Russia constraints, $X.XX $X.X now we our to to continues year. cash per the business free should some I to to the impact make we any we impact to we billion profit to full recover XXXX, recovery pieces commercial continue $X to more our adjusted be with flow payment and capitalization by but the to said this to chain deferred mention Those we is Pratt. sales legislation assume seeing the the cash fully

a if expect. receive is by ultimately legislation continue this timing the we end as However, year will for in payment to XXXX is a only we issue deferred as refund the overpayment

segment for offset now outlooks. double-digits chain-induced So low on little commercial we aftermarket with year, to we Collins, versus some the on to up move by where Slide partially to a sales. year X sales At continue that, color full expect supply be let’s prior pressures recovery military stronger that’s see

a versus profit last to spending As measures, operating million a $XXX year. range we million up to adjusted $XXX $XXX result sales to of are mix of increasing million new up better Collins containment and from million $XXX

profit up we are adjusted & million Whitney to range from $XXX a better respect a year. last and sales of double-digits & Turning million Pratt, million $XXX profit increasing we of mix. versus year low from at prior driven low-teens single stronger OE With versus new to of aftermarket to Whitney, Pratt $XXX up million high up are increasing operating commercial range to to Pratt’s $XXX that’s by range Pratt to and commercial range operating a up new to

down range the in full we to as million outlook And down up ongoing and to outlook down of versus flat also prior mid organic prior of RIS, finally, availability of see of year. to from full and along up we lower of prior And spending we as are single-digit year. new anticipated single-digit versus versus reduction, reducing material profit result impact of RMD, now program profit discussed organically, from prior in range we flat and have up we $XXX full of down productivity And a range also a RMD’s development pressures unfavorable to prior slightly are million new year. operating to million Turning a to the versus up RIS’ sales in a reported with a delays reducing the to a the some at year. $XX expect due outlook reducing sales improvement and to awards, adjustments, are are along expect we impact, we year RIS’ million million range And from outlook lower and low sales range flat $XX associated tax mid of to to a to reducing reducing low delays profit year. some cost with to versus And the prior RIS’ adjusted single-digit down year rate. are slightly sales range prior the to roughly RMD’s from flat operating year $XX due operating outlook adjusted up single-digit low now of corporate RIS’ result, new from the be RMD’s $XXX prior

of and in webcast those have updated below-the-line appendix. items the included some out We

with second me So results. Jennifer over that, segment quarter the you hand through to it take to let

Jennifer Reed

up sales markets. By primarily in with modification XX% Sequentially, adjusted in up in volume. channel, by driven expected lower an billion were XXX organic Thanks, commercial the and repair, XX% lower prior Aerospace strength in Adjusted a more higher X% parts in end provisioning of X% contract were were sales expense, than on Collins continued increase sales recovery $X $XX F-XX with offsetting upgrades. an basis and and XX% and and operating a declines X, driven the Starting prior absence volume. aftermarket basis $XXX from commercial down were profit offset million aftermarket sales the lower OE expected million by were military favorable from deliveries. by was year. in XX% the up XX% versus Drop-through increase sales X%. material on on XX% quarter, commercial receipts Commercial headwinds military Military aerospace higher increase Neil. of up an programs up on year on settlements up commercial SG&A sales Slide narrow-body primarily driven in aftermarket and

see large $XXX and business. and driven X, sales Slide driven Whitney In all GTF the up FXXX quarter, Commercial sales sales basis, business, sales XX% adjusted OE timing were commercial XX% both $X in Pratt’s with the XX% organic mix legacy primarily commercial billion by the and deliveries within contract growing by engine up up award QX, military basis on sales see higher on favorable Shifting in Pratt year was million as production last up double-digits of shop large visits. were profit in were with offset to and engine million higher ahead, across from growth aftermarket were partially volume military the segments. Canada million we an R&D. FXXX discussed, higher with aftermarket, versus were up prior up profit year. favorable full an XX% higher and OE we Commercial SG&A commercial on continue on of Adjusted million Collins’ operating & low higher Looking up commercial $XXX Neil to along $XXX aftermarket adjusted sales now X% mix Pratt year. by up to volume. $XXX operating of Drop-through

for $XXX be and to expect million Looking sales up versus XXXX. million adjusted teens to low ahead, we $XXX now be to operating Pratt profit up

billion. that a in be prior expected continue of program certain Slide sales the in net in unfavorable basis billion primarily to year noting on of RIS billion a RIS of contract down expect basis awards. an organic we an divestiture X.XX year adjusted training now of $XX were book-to-bill versus X, worth X% prior the X% It’s $XXX million to of versus and to driven greater one. the classified sensing $X.X in that of down $X by The quarter, lower year Turning had global including driven of backlog million the absence resulting programs down than efficiencies, book-to-bill development impact prior Sales offset $XXX program and versus Adjusted the full to adjustments, year. were well operating due on RIS’ year of the sale prior the business. by by bookings services training quarter partially by was in lower command, the within cyber of land was primarily the sales profit impacted a divestiture lower and and sales control were in sales as delay communications higher and within as in services. cyber also quarter effects

flat basis year on operating on sales be down profit RIS’ flat we year discussed, expect to reported And be RIS organic down mid-single RIS low $XX digits to about prior Neil prior down outlook, now year. to versus be basis. to and an a single to Turning full million as to expect we digits adjusted versus

$XXX partially by a were and than and prior XX% billion, operating on million continuing delays next-generation in of programs. sales on an air and land, volume lower in Turning XX% program offset driven XX, primarily by the availability were resulting unfavorable warfare and and billion of from an that were Adjusted constraints net now a development. backlog bookings resulting air primarily mix land, on $X.X driven million RMD’s certain lower adjusted by $X.X was efficiencies expected primarily program and in higher continued billion. defense defense down in SPY-X quarter warfare volume basis to book-to-bill chain in year down an of Slide and program basis approximately organic supply material X.X lower and $XXX production $XX interceptor RMD declines profit

awards hardware SPY-X the addition In discussed, RMD production million for U.S. program booked Greg production Tomahawk sustainment that million to $XXX $XXX and the the also and Navy. on for

wrap full full now And for operating to year $XX to adjusted book-to-bill slightly For RMD prior year. to the now back prior year, Greg million up. flat we closer looking versus we be and sales to be expect X.X. profit With expect versus down to ahead, it RMD’s up to that, be I’ll things turn year to

Greg Hayes

Okay. Jennifer. XX on Thank now. I’m Slide you,

be for We Q&A. will a second just

some about: despite and uncertainties challenges the of well the labor the we supply year, inflation of So to availability. mitigate we’re for chain, equipped remainder talked the that macro

importantly, order we set Bookings our this to certainly as technology cost through year that, drive to There meet we growing of the so aerospace There to allocation do. There last were capitalize prepared we’re future. to operational A&D, year. continues on progress, confident at innovation that that do. for XXXX Balance do. and customers we we not excellence, always execution, a continue into the to me think meeting. all execute the outstanding; significant performance up focus while recovery going that industry-leading and we businesses quarter. hit same much in investor continue lot the And With long-term the as is with that remain our on well franchises and value satisfied budgets. targets capital our our is in to At our more With shareholder work. let our let’s out We’re commercial in in the time, in defense growth to And much. to call this make on questions. we’re investors most to defense is just well to say I commitments earlier for reduction, across do to open the to May Latif? our set not ability invest strategy

Operator

[Operator Instructions] First the line Please ahead, question Bank Epstein of Ron of from Ron comes of America. Epstein. go

Ron Epstein

Hi, Greg. good morning,

Greg Hayes

Good morning, Ron.

Ron Epstein

on back So maybe can first we quarter, if the right, in what’s going quarter. XX% RMD, on for supply the onion the peel you more X% chain and in And defense. down this were

you’re like be guys surprising, seems mean it’s the ask year, a business? than your it to the almost can really say defense going Because happen? learn You this, is believe. then going How a good pretty better to which commercial any have businesses the to during run going to right to there guess, commercial It’s from little up that I I are way means your And you’re businesses, another company. inflection. hard you defense are are but now lessons that DX-designated businesses a

of the full-on should right in ahead you have terms So chain. line of supply

going So hard. Because hitting that on so guys it’s it’s what’s really there? you surprising

Greg Hayes

is would tell I that you. of question day. the Ron, the

First to of programs just be our DX-rated. of are all, most clear, not

is us the DFAS couple a supply very, side. between that are But priority where In commercial we significant fact, ratings give on businesses those defense chain. you, differences I’ll there of very Again, the few there and very our tell in have are few.

forecast those long-term this for to XX% buffer supplies part long-term you agreements, as of our about say side, commercial place. also give us of agreement probably a the in priority. LTAs And suppliers required right? demand, allows to On but stock the ability That it keep our gives are suppliers us around

all gives delivery. that certainty and of Now, certainty cost of us

those businesses always be about job, commercial doesn’t castings for it That & Now structure would Whitney most work. structural in challenge. a to agreements. have done we way We QX. the of I continues better part, because the But Pratt a say, back talked long-term at the

And And of that the about you, come side only RMD at of you government was out look we’ve award lot signed, is back tight triple. In chain If it or is have of market have The set had are those long-term X pool awards, I these only – about is because of because the seeing large don’t I the lot resources. a on A&D would chain. goes people and we we’re of XX% have as all downturn get off-guard XX% how we’re of suppliers Again, that’s by surprising in those we labor tell availability. – in And lead we’ve that supply double in problem the out of layoff. businesses been we’re business, defense coming and contract is received and once all labor and folks little the going about would other is on suppliers rules. let seeing case, of XX% that not There agreements. the to pressure caught are of XX% just years times Typically, say, going found contracting putting jobs, a the RIS, back once a there similar They been, we during contract, bit we’re what saw of these to we this country, the and – jobs. people new ago, we’ve is layoffs. this a so were in off go. our back. there much is Typically, supply sometimes

on, it’s availability. about It’s requires we’re material. you business, not I labor problem that other also programs clearances. That right? engineers our tell again, and would I’m thinking RIS which engineers just The has executing X,XXX with over

and are to have on we less talent engineering with And again, in attrition, the for about rate than X%. it, hiring hire X,XXX started we at about struggling revenue. engineers the well. which engineered but U.S., unemployment regard year look goal you as more you don’t If think in net means of than the X,XXX, probably that it’s of working a programs We generate

of half in year, about the so seen availability the as labor our a have businesses. issues the but think impact the And chain QX defense supply we first and really also we

parts and In you’re give we to of kit talk availability. we XX%, of to other a Right the of just time. these constraints, a XX% is the about provide XX% assemble, target to and to words, back XX% shop the in you kit As you of factories, In quarter, lot year, typically the the there XX%. our couple there, between quarter, now, floor we work around half supply second in to absolutely somewhere of look XX% rates second kits because the statistics, do. the chain right, all to all fill are saw of

the imagine complete. we that shops starting amount our things the rework, as can you lost are not of productivity So in are

doing back, of some what’s headaches these of all on defense side. that Going is the causing rework,

look we as with the with Neil are by that. kit the the deploying big to we guys for had XX% to resources. recovery XX% we plans. line we’ve out go year, sure reviews supply but we end Calio do And again, some a And to of to Mitchill we the have dive about back half year. get, going rates, very the deep of Now have instance, at from sight roughly that Chris fill expect and making That’s and the of absolutely

got we’ve labor – about the to got working today As pick-and-shovel sure I done. It work, and get this where make people all suppliers they we about labor is comments, trained trying in it’s right to our also said XX have all this. have through

making order is the is of half a to challenge our first all, hill to to meet to year, we’re the is our know, out it don’t customer needs. back you of in that? take a now, about this on climb to we really going Neil, add have to I can our that sure we’re it customers time. suffering. to So customer to right And in – want I mean deliver anything or demands and

Neil Mitchill

one supply is Maybe we’re RMD, quarter the talked of the the half. of little I’ll first challenges We a put about second for just in looking at of hill the the material around labor that chain. kind issues in At sort the COVID-induced color big receipts.

second second quarter, in worse. And to also year, second RIS, half a that. important step-up RMD not. a step-up I volume in little their material it it’s of the needs the and look and about new it to at part dollars And did for that in about We Obviously, When fact, the XX% of first is half. particular, RMD the versus in expected got products, in reflects bit outlook half at in the see an our second get half. the a better XX%

that So daily those we’re weekly basis. on are monitoring metrics and a the

is add other to their relates productivity. it I would the As Greg, performance, only thing,

not RMD the remainder profit say us you reflects reasons, So talked one productivity. the in drop RMD given issues the about. for the big And the second I’d the to of outlook was the margin about our in kit for productivity, that of absence that on half catching at related up year lost the of quarter of fill productivity rate

Ron Epstein

given a something – stuff, goal? realistic If I mean, points Thanks. that’s dime. I not Great. – about that most up mean it’s the to to of hiring mean that’s even you is fast on XX%, change that mean going brought I the people I right? can, that turnaround I XX% from going

If you’re use…

Greg Hayes

be year. does solved Let’s get not this this Ron, clear,

fill to all running done a of on supplier to a their of different are I at I kit suppliers, But rate lot deep making pace. think, supplier. dive interesting. why they XX% of out lot reviews say, of through normal got meeting to we’ve getting work. would of, a supply chain, That’s literally, say, by I a these XX% going need It people We’ve commitments. is we sure be at is be again, would

we’re workforce simply think to in see to a reviews, But I this, and easy And we’ve path. they – an get a at is the the year. right challenge for to all as slowdown material our is big because third of I receipts we are And and again, a the by we we attract it’s out going enough you go day availability, hate throughout there now, we But tracking in the how as workers. going the of thing path done to to supply say competitive It got pay struggling do people would down wage into there. these suppliers. is tell second, we’ve It a fourth very, very labor a the have economy solve you, tier chain, RTX. look, only I day, not just aren’t hill. that’s be there. people will

Ron Epstein

Great, you, guys. thank Alright.

Greg Hayes

Ron. Thanks,

Neil Mitchill

Thank you.

Operator

Thank you.

Our Please Partners. next question Vertical comes Stallard. from the ahead, line of Research Robert Robert Stallard go of

Robert Stallard

Good morning. much. so Thanks

Greg Hayes

Good Rob. morning,

Robert Stallard

pass inflation. there see the how and to you? on a Greg, pass impact versus there cost to this, – there these But chain to as maybe start can it’s this or the to of aerospace in to the cap of chain do different ability on bullet your more going labor supply biting a you on be point you follow-up you have and the What Is increases? where point Ron’s of much up defense? is

Greg Hayes

this $XXX headwind we didn’t about that As of year, look Rob, the inflation at we’ve we when we it million anticipate year. got additional started

eliminate out. initiatives had we’ve We’ve the million, to supply chain to $XXX done ways to go looking that of So that a headwind. within number

so done that. in $XXX had on And job of about we the that of far, we’ve of good mind, earlier headwind that’s top exit Russia in year. the Keep pretty a million from

in and managing tell would headwinds a good the we’ve some cost overcome done ways I that team So to has the finding you, of seen. job

again, provides coverage commercial side, the inflation. On coverage with XX% LTA at really the lot a of you

the Usually to through and X% some X% levels. there able is dead or most there we’ve shared Now in for supplier. manage the part, inflation been But above with gets excess that. bands

the overhead at the – to seen, clearly. again, cost the I chain. into type side, labor again, in also XX% We’ve our work We’ve put RMD. seen say, is the just process. been able inflation and of recovered On contracting that, least would But most of in that we normal gets defense well, again, supply most that at have what though, we’ve seen rates, we’ve inflation –

pass on inflationary to this the continue And overcome chain seeing the push of to reasons along. that we we I impacts sure that to right make again, so one And the think now, you’re that there. in able supply the we’re RMD can is side

how have we we’re the to we from some LTAs, I is consistency So of more absolutely side. manage I the chain in to think, commercial learn this think, need terms going supply kind forward. of again, going going essential lessons And be to if able of to

Robert Stallard

Thanks, great. Greg. That’s

Greg Hayes

Thanks, Rob.

Operator

Thank you.

Our next question comes from the line of David Strauss of Barclays.

question David please, Your Strauss.

David Strauss

Thanks. Good morning.

Greg Hayes

David. morning, Good

David Strauss

on maybe side I missed the could think QX. recovery in XX things? Greg, of touch on you you the had GTF

talk you up were you where then deliveries there? XXX also – the saying to in side. are were about the full year. And for were You XXX you down deliveries quarter. on Can Canada just saw around Pratt about talk I the

titanium issue highlighted was big that Pratt on think pretty previously Canada I side? Thanks. a you the had

Greg Hayes

Thanks, David. Yes.

we as tell said on deliver Let now, of GTF the we I And back behind the goes I castings. – around continue And in you, just me a right is schedule. year. – single February will catch back end GTS would to think I this again, structural until side. not the issue up, to

the XXXX. holding Airbus. at not That’s line the We’re with news good up the

the on the AXXX. up the I XXXXs Series guess, the either on line C We’re holding not or

So customers. managing we’re with this the

half a year to the GTF the supply – going step-up see in of We’re really we expect chain. And again, deliveries. the back managing this big on with you’re

half. about first As a your had great you think Pratt

back Second because the the of lot commercial going year. to negative even half, with again, tough got margin recovery aftermarket, be a you engine more it’s half in in the

the beyond surprises would is goes year you things, but now, all right always So little structural into on nothing But again, of GTF huge. there that other castings. And tell David, those is full calculus there I the no guidance.

again, the buy exactly Canada to around primarily buy Pratt on desire inability this our anything sanctions Russia. continue you’re is and our to side, titanium. On And to nor the right from

identify we working at our you’re a as I them to lines production impact second number the sure will will of biz been side. have hear from tell that them. qualify I’m sources, we to on well So customers. you going jet

not going to deliveries. be make able just We’re the to all

dozens titanium Now to engines are that we’re airplanes X expected at because about talking this these dozens the but talking of be we forgings to don’t XX and without aircraft, going you’re get have not year. we customers to that had

the year, next still of it middle sometime suppliers People think do is these last Interestingly, re-qualified. same lot I are XX% the going So are it we understand fact titanium. in to see commercial get recover supply a again, on is conversation after Farnborough and titanium of of but I there is week. work in same a aerospace facing of The suppliers the had were those the is global wasn’t chain, to take with with and think this problems piece but single person of will up. a this. And the Russian a titanium this every business, was to plus suppliers People a this big as I good opportunity share. of our stepping all resources. number a we in long-term huge

little be So, of pain customers. going our will bit to it’s it, but not through to without we work a

David Strauss

along you Greg, are in these how titanium contracts? far supply reallocating

Greg Hayes

sources issue The complete. the are we is qualified. getting of – contracts, simply in and terms parts say, probably identifying Well, almost the are I the we would

through a article. got to go first have You

got metallurgical analysis. You to the through go

certified. same parts then make of sure it the material composition to to was got you got prior. that what the You the as And is get exactly

the part the So, actually time. not suppliers. It’s that’s that identifying takes

that. have We done

to We have was the number are on in of those same of up. heat yet. There of and a most There that And are thing that we do. is that’s a have The got working and through heat lined now the XXth But different work not venture exchangers or done that’s still on – requal All of XXXs, exchangers. of Recall, end we joint is heat work at – are for XXXs, commercial are year, through for heat for everything exchangers working of a of through got Moscow. coverage exchangers. in Embraer the we the we requalification XXX. that’s we the issues made discontinued titanium February, number lot our there.

David Strauss

you. Thank

Operator

Thank you.

the from Poponak Our next Goldman question line Noah of comes Sachs. of

Your question please.

Noah Poponak

morning Good Hi. everyone.

Greg Hayes

morning Good Noah.

Noah Poponak

the or to deterioration the what’s changed am forecast. window confused to by happening the inflation the chain manage deterioration changed quarter defense to supply the narrow whole the was. which narrow just confused negative hard forecast. in manage supply it’s about am and have defense first call hard variances to forecast of the hard repeatedly, inflation pace window is talking if But I pace unprecedented – by Obviously, with the are have April, to world But I of – go variances you or because labor and labor And I back are in unprecedented because the large. which in and and the hard forecast pretty chain

And into the so month you were ago a months giving guidance quarter. three just and

And more is at months And to months’ time, second RMD if I if supply to some that an guidance can of how could drive this just just that half to and us you labor three see inflection, that this acceleration. difficult that two stare comfortable. programs much chain, deteriorated have it’s to in forecast? really it’s the the get it inflation latter, or it’s so hard to that much of have that spend back discussion the still specific Maybe time you on go

Greg Hayes

ones in we that seen enough much turned when struggle can as chain, having we quick in specifically COVID but chain challenge, quarter, Not in is that a first be, that that of December has related of measure we the to the the supply challenge, is thought but we out it. supply and in be chain which not that’s the the work And to incorrect, a it, challenges a had to January, labor course, we And that see supply Inflation in see challenges, really or reason was we supply The that we people and have I would continue RMD, the overcome exited knew would expect we I to was the can the Omicron, think challenges receded is into chain. chain. was, recovery wrong. we and and background that’s more at it abated. had most supply again, that fact, proven and you, difficult. Noah, that we were tell continue to in great why Yes. point. to

tell think go-gets commitments this, suppliers there, through I we And there so we have of would in in these from are some gone but out hit terms what’s to item you, schedule. again, program-by-program, have our And MRP item-by-line line numbers. the anything deliver know, they recovery for is that that sure plans to… – that Neil, you that’s have And the suppliers challenge making the don’t continue on laid to our us. is I want I out

Neil Mitchill

of ones program compounding the because impact been the quarter, second focused, Yes, that in is And the during mix we expect were more that received have a with material. there two has of the and seen one production got receipts points to persist. of slowdown development a quarter contracts and our output materials. the We margin different lower

back programs. the getting coming had to rate the So, more you stuff that conversation, not fill profitable on that was in being

of in the productivity that, shops. knockdown is labor The of absence the of effect piece second the that

we just And down the labor range, primary rates RMD quarter XX% EAC a and of typically driver that we which of is so through efficiencies, not the being in has get fill rolling the did the see benefits in with benefit seen.

all some, second in expect of to that, not half, Now recover. the we

And so second the tough half. it hill is a in

second benefit and with drive engage do in we to day, see improvement we are think market to resources half floors. suppliers a business the have on But the of I shops within at to P&L in and the need productivity year. got looking every shop the we right and this the that in the

Noah Poponak

you. Thank Okay.

Greg Hayes

Thanks Noah.

Operator

Thank you.

line next of of Kahyaoglu from comes the Jefferies. Our question Sheila

please, Sheila Kahyaoglu. question Your

Sheila Kahyaoglu

guess could me. that guys. Okay. Good was I morning I

Greg Hayes

morning. Good Sheila. Hi

Sheila Kahyaoglu

they are airlines, pricing When seeing and constraints. finally we bit, about little gears Hi. capacity tailwinds just think pushing the a U.S.

talk bit international year business? can little different And history? the about you the half? second your seeing relative the can pricing aftermarket actions for expectations you long-haul airlines? remind How to from guidance trending then aftermarket a your Are So, expectations you of us maybe for is with

Neil Mitchill

Sure.

here. Let with pieces me the some start of outlook

to XX% now XX% aftermarket we year-over-year. between up Collins, at and First, be expect

So, mark at of the halfway the we year. are

the a important. we lot that and been improving, talking recovery, are pleased have obviously, and it’s around see think uncertainty holding. I about to the I

probably is very will But Greg comments here think for I well. demand travel clearly, as air of couple want to the add a strong.

body in half. well in Pratt the and XX%. some the to terms routes second of we up opening are wide see aftermarket the And that on We side, seeing continue the year-over-year encouragement up now as expect

performance So, there. really good

to giving line are customers Our shop of visit good inductions. sight us

little plan are We in done half over VXXXX the shop year. terms the a some towards be work of back still our visits. for of the XX% to is year There in

we of of the was the But that closed part better feel second China half a back pretty quarter, know, you As growth. piece confident. is for the and down

our expect to We of the the third sight have continue particular, customers, and a line in got with I fourth in dialogue quarter to that good good quarter.

Greg Hayes

long an availability same shortages, I pilot travel would the aerospace that it’s Demand I the commercial of time labor the time you And supports certainly think a trajectory is would surprise all handlers. about I go to business. terms you people talked is commercial It’s we TSA struggling that agents, course, Sheila, that but airport it’s to in we Yes. with that the baggage is again. lines the it’s interesting the of just in problem, everybody is by supply today are an caught it’s – word. every say the unprecedented And the for desire wrong recovery chain. of They say airlines. the tell can have. not

eyes price prices, strong. for the A strong. couple of Jet of So, you a Fuel know, in in has its very come last But is months is the off Pricing, airlines recovery as ago. doubled very the year. it’s

I So, biggest have doing availability. aircraft well. financially they And the airlines again, concern the is are very think

are inductions the so going And into to shop. strong we see very

than resurgence second back quarter. we our very trajectory seen strong orders changes that in stronger And have We the the little a going in into had anticipated there anything think getting that aftermarket don’t is have bit and we snapback want point, seen soon of I again, year. quick in at will reopen some we as people which to half reopens. in a a think China as COVID, the Absent huge China travel. demand

and pointing I think positive into direction the commercial all back half for it’s XXXX. on of the So, in year a aero

and path again, along no So, change we trajectory. in are the recovery well think I

Sheila Kahyaoglu

you. Great. Thank

Operator

Thank you.

comes go ahead Peter the Arment Arment. question from Baird. Peter line next Our of Please of

Peter Arment

Jennifer. Greg, morning Hey. Neil and Good

Greg Hayes

Peter. morning Good

Peter Arment

side, that complex of but with if same to with same it’s back to Greg, time commercial performing, of struggling could well lot trajectory the think challenges, at versus of well. maybe I or really would the out business, call just that kind but performing seems aerospace the maybe a can defense just very mean Probably if is differences of lot the differences you a chain out the on helpful. call dealing I back it couple kind really just trying same I how Because Thanks. be supply the of some a Maybe defense. come of overlaps between it is aerospace to aerospace dealing probably where get and a your commercial of is. lot your with the business differences?

Greg Hayes

end, that the management on MMS, to side we Yes. the with order, which we able not things is inventory we handicapped of of the defense can to soon commercial and on one material the the you ability place we Look, to dictates of would I reason are system, contracting we that – commercial how how on can one our a have tell government benefits the be And flexible successful side the been have on in. regulations. constrains is lot much really be inventory side. drive driven

the demand. commercial up look inventory, primarily meet the the million second the quarter, at It’s $X to up on since in about year. the the it’s $XXX billion side beginning about higher You of

in have So, material faster. driving we been

think We And in defense in. than we it more bring are And system. bring is a I not have to us. in had constrained that’s the normal team on the it. for build that learned is times, within We sooner commercial side by We inventory rather okay. what told the to don’t again, MMS lead lesson

more with are be we aggressive going So, inventory. out to and little go a

the as know We dollars, And but year. surety are of supply get of inventory chain, demand that’s better billions surety motors, know not the they look, to need the to and material suppliers and that drive sure But stretches But not that I the have got fact we tools. faster XXXX. there. of but that’s are office some or working with we right help the on to is problem. chain drive corporate chips side rather to over a some folks year. about such continually hand-to-mouth a our this And make trying of mean talked we only continue probably of supply not in microelectronics again it’s again, some defense to the supply have and to We for and the going are talking a folks here into easy. at have we overcome again, these really in. off the recovery of we Rocket the piece give it’s challenges,

Peter Arment

Thanks color. the Greg. Appreciate

Greg Hayes

Thanks Peter.

Operator

Thank you.

question next from of Melius Our comes of Robert the Spingarn Research. line

Your Robert Spingarn. question please,

Robert Spingarn

to situation. it the don’t mitigate more And and an Thank going term business that’s labor-intensive businesses be constraints back apply a implement? require the to that’s to labor brand-new go casting, issues. to in to Asheville, trained casting. inherently pool available Does labor across automation what tough an discussion that, facilities programs or seems there you. labor brand-new and have to on and the specifically Greg, I It’s really these is you wanted with opportunity inflation four ask longer this

staff you that do be more specifically, how or will automated? So, plant it

Greg Hayes

years. – something doing factory that is been would we of it’s number you, look, automation for have a tell Well, I

than manufacturing. went have about the at we lights more ago, I Pratt that facility out Canada X years think completely online

X.X making So, it, our we all call industry across will investments, I have of factories. an been

have factory got factory, new in the that’s there. project the new down Dallas, automated going down We in

And employees them that which number we for of only while Asheville. to train Asheville, have them actively actual next have year. the is end it hiring, got going be about sometime we think a happened are think the I today I been of the to is at opening, and You facility, hiring XXX has large

very of wages. would drive & very Whitney, – you, So, you a we if work the that again, labor across direct tell the front. engineers But labor at will to very portfolio, it’s anywhere a sales. work revenue at or RTX these of trying enough you up signed challenge. I Pratt challenge that or to pay Collins it programs for. qualified again, But tell we a good with we of – expecting piece small have is would that’s have cost the bigger growth look, be on on I been just all cost, is we The And clearances engineering find our cost

the The And we Raytheon slow the really People and economy here down hope, coming inflation. problem, can offices shop opportunity to year, on think have both into we marketplace. I the will in a as in mission. competitive our differentiator is floor really of see drive with perhaps as continue that more labor to months pay, walls we deal fact, good is the course, into folks have these the shortages, our four programs. the we have as can well our we inflation So, with because because good come within benefits. but the to own got that And that’s deal of it we a

going it’s reduction of amount. encouraging what the billion It’s we $X.X suppliers are are we which year to we not think we automation, drive as on the to thing. all kind far As automation. contemplated, in to I cost same drive a to is CapEx, that But do do an spend continue insignificant that

Robert Spingarn

one on Asheville. more thing just Greg,

mentioned single you I supposed for but address do is airfoils, remember be You been to the tent structural here. long a Asheville there We this earlier. large structural structures correctly, castings in supplier If know pole it’s that to just problem. might

Greg Hayes

structural think, a The skilled. supply and is there, chain large in you highly a relatively And tell will decision I I would on require go again, castings to fact the we decide whether airfoils that take Look, workforce later is Yes. that’s up first. investment. another huge capital we

to going go with us It from there, But I sorry, take go to airfoils. we am will production this there. to years no to are point. airfoils we see We will – several get beyond where rate at structural really up full then and the beyond start to run plans go

Robert Spingarn

Thank you.

Greg Hayes

Thanks.

Operator

you. Thank

line JPMorgan. ahead. of final Please question of the Our Seifman Seth go comes from

Seth Seifman

the time is now much. do very in China in of a Maybe are some XXX of MAX kinds that seems on these CXXX. in defense worlds the final be fast that or on on a it to aviation the and splitting think right aerospace? do situation. supplier company is do about days? stuck to the that how morning. a decoupling all Thanks the about for right see color the just political up, think U.S. about thematic. think We limbo China, see the the Thanks you maybe you the these Collins as over little How quick which Good not it? way and two that’s How Greg, question China Yes. role more at you pace

Greg Hayes

for indigenous we incredibly maybe have an partners the coming China – have CXXX, work important look, some remains our aerospace we to we growth the over aircraft. at commercial there. commercial for desire think incredibly fact large will market going the That’s CXXX the continue is, decades. to with are to have Chinese point. market the So But Obviously, is aerospace, a an

commercial chain aerospace, supply of Pratt we but Canada Whitney. have that continue come and that for thousands thousands out Collins, China some will China & to of parts Pratt for for at also We and some specifically out our of utilize

the are At realities, to we supply also I the assured think going geopolitical we same are work sure we have time, to continue we that understand making with look, So, Chinese. the and chain.

China again, we of the That’s years, to make years to thousands to looking the on numbers the decoupling chain after But The if it’s have there. second of relatively supply of that. the are been world. – well to the sources we that consumer, in impossible economy, a and the China couple not decouple. tensions that we outside economy think second from of access to the of consequences for the are U.S. X.X try U.S., impractical see for don’t from a almost geopolitical decoupling world able of Russia, invasion ongoing a we will were economy in the next eye small, and point largest sure really China we the and way between we the China U.S. the the I world process is to that’s part is again, decoupling case Russia So, over Again, have seen continue do where the of Ukraine. imagine the

to here same the large customers path are the again, But same on So, very we at need the we time forward understand what a together work China we at the we interests. in But is presence for where we to commercial understanding find time, have long-term. that protect retaining our defense hope we do competing not the can aerospace, obviously, side. a

Seth Seifman

you. Thank Okay.

Greg Hayes

Okay.

today. will and team, much. thank Thank be Latif, fall. take questions, day in listening So calls early Appreciate you. everybody in course, very guys the Jennifer seeing and look sometime you your available forward and to all of to you

Operator

This now concludes today’s conference.

You may disconnect. now

RTX (RTX) 26 Jul 222022 Q2 Earnings call transcript